Closing Bell - Closing Bell: Stocks tank, Health care bright spot 8/22/22

Episode Date: August 22, 2022

Stocks pulled back sharply to kick off a new trading week, with the Nasdaq feeling the most pain, as investors look ahead to the Fed’s meeting this week in Jackson Hole. Charles Schwab Chief Investment Strategist Liz Ann Sonders joins with her take on the selloff, and how long it could last. Market experts Barry Knapp, Keith Lerner and Jim Paulsen share their outlooks and best ways to play the volatility. And Signify Health was a major outperformer today, boosted by reports of a bidding war from Amazon and others for the company. The CEO of Cano Health, which was boosted in sympathy, weighs in on the potential deal.

Stocks pulling back sharply as a new trading week gets underway. We are sitting at session lows. The most important hour of trading starts now. Welcome to Closing Bell. I'm Mike Santoli in for Sarah Eisen. And let's get straight to today's sell-off. Down more than 2% on all the major averages. The S&P 500 here, if you look at the year-to-date chart,

obviously that very aggressive rally off the mid-June lows really accelerated in July. It's kind of folded back on itself there. And here's the area that we were all last week pointing out. A normal pullback would get you down in here, 41.70 or so is the early June highs. That would show you that it was a pretty strong, persistent rally. Crack below that also may be relevant. We've also gone back to the levels that we were at right before, just about right before that CPI report, August 10th, where the market gapped higher. And then we went on to fresh highs for the rally. We've kind of unwound that just a little bit. Take a look at 10-year treasuries, because this is part of the

story, a big part, above 3% again. The stock market has not really easily been able to digest 3% yields this year and last year as well. And you see there, going back to July, mid-late July levels, last time we were here, 3.4% is the high. The two-year note yield also making close to the former highs, above 3.3%. So clearly, the idea that the Fed's going to keep tightening at the same time inflation remains an issue along with growth. Those are the issues. And let's get more on the market and how things are set up. Let's bring in Lizanne Saunders, chief investment strategist at Charles Schwab. Lizanne, great to have you today. And I wonder just what stands

out to you in terms of this action? Clearly, there was a pretty heated bull bear debate in recent weeks about whether this was just a routine reflex rally within a bear market or the start of something more. Has that been clarified for you? Not really. The only thing that was interesting about the rally as it relates to this one versus the couple that preceded it in the current or prior bear market, however you want to define it was at the breath was. Healthier this time at the recent highs you got to 93% of

stocks trading above their 50 day moving averages but the leadership underneath the surface. Was not indicative of a move suggesting better economic- prospects to come you saw the you know month to date August utilities are leading

you're seeing another move to defensiveness. Today so I think that underlying message of more defensive leadership was probably telling a more accurate economic story. And with yields having backed back up again, that is a basis with the yield peak back in mid-June for the rally and the inability to move above the 200-day moving average last week, I think some of the technical triggers kicked in as well. For sure. And I guess I wonder where you think we are in this process of sorting out where the market belongs relative to the economic situation, because we've spoken before. The most bullish thing for the market might be that we've been

in a recession and it's almost over or it's kind of a technical recession we're coming out of, as opposed to being in suspense and having the Fed fighting inflation and maybe having to cause a further economic downturn. The defensive leadership of the market clearly says we're on guard for all those scenarios. Do you think that's just the way it's going to be for a while? Yeah, but let me talk a little bit about what was also the basis for the rally, this notion of a Fed pivot. And there first of all, there's a huge difference between a pause and a pivot. And what I couldn't understand about the pivot narrative is it was this sort of broad, really, really optimistic narrative. But to me,

the only way the Fed would go from the aggressive tightening campaign that they're in right now to a cutting campaign early next year would be economic deterioration already from these weak levels that are significant. This idea that just inflation having peaked and come down would be sufficient to give the Fed the green light for rate cuts. I think there's probably a coming point at which they feel they can pause, take a little bit of a breather. But I think a pivot to rate cuts only comes if we see more economic deterioration from here. I still think we've got more weakness or the start of significant weakness in the labor market ahead of us. And I think the rolling over of earnings estimates for the second half of this year into 2023,

there's still more of that to come. So the market may have priced in, Fed tightening to some degree, maybe even mild recession risk. I think it's the coming deterioration in earnings and the labor market that is probably not yet in the market. Right. And, you know, clearly the market's aware that Fed Chair Powell is going to speak at the end of the week at the Jackson Hole conference. And presumably he will speak to this idea of they need to be vigilant. Everybody's, you know, from the Fed has told us that, that they want to see multiple months of declining inflation before they consider any kind of a change. But this idea of higher for longer, which I guess you kind of allude to,

a pause and wait and see if the Fed funds rate is, I don't know, three and a half or higher, is a different equation for the stock market than turning around and cutting rates. Do you think that that's not going to be enough to satisfy equity investors, that we just sort of know that we're near a pause point in the Fed funds and we can kind of get valuations in line with that? I don't think we're going to get any hint that we're we're getting near the pause point from

Powell or any other speakers at Jackson Hole, maybe in large part due to the fact that there's another CPI report, another PPI report, and another labor market report between now and the September FOMC meeting. And I think suggesting that they're getting close to a pause would be counter to their data dependency sort of guidepost for this particular cycle. They're not on a predetermined set course other than what they've established so far with the reduction of the balance sheet. But if he starts to be more explicit about whether their comfort zone is something higher than the still stated 2 percent target, and they maybe start talking about free and change being the comfort zone, that I think could potentially

be market moving. It would be the Fed conceding that the inflation plane, whenever it lands, might be landing at a higher elevation. I'm not suggesting I think that's what he's going to say, but that may be one of the next things to listen for. Yeah, that would seem to be one of the maybe the few ways to suggest some more flexibility, I guess, in their policy outlook. And you've been pretty consistently saying you think that what makes sense right now is looking at certain kind of quality factors, earnings reliability and things like that among companies. Does that remain the game plan? Yes, especially given that a lot of where we saw the most robust rallies was well down the quality spectrum. As

everybody now knows, looking at the carnage happening, some of the meme stocks, the rally preceding that had gone parabolic. You saw it in other narrative-driven, weak fundamental-type segments of the market, the heavily shorted stocks, the non-profitable stocks. And there are times where it makes sense to go down the quality spectrum because that's where the leverage is if you've got a coming meaningful pickup in economic growth, like was the case in late 2020 into early 2021 when we got the positive vaccine news. I just think this time it was just pure short-term speculation without that basis being a coming improvement in economic activity. And now we're seeing the other side of that with what's

happening in the last few days. So I think it reinforced the need to be quality-based, fundamentally based, as opposed to chasing some of these speculative areas in the gambling den. Yeah, certainly they've started to unwind. Plenty of that bounce already. Lizanne, appreciate the time today. Thanks so much. Thanks, Mike. Good to see you. All right, let's now get to Steve Kovac at headquarters

with a closer look at the sell-off in big tech. Hey, Steve. Hey, yeah, I'm at headquarters, Mike. Let's compare what's going on with big tech today to the moves of this rally we saw from these names over the last three months. And we'll kick it off with Apple here. Apple's slipping over 2% today, but it's still up 21% over the last three months and now just 5% for the year. And it's still flirting with that all-time high it hit back in early January. Microsoft now. Microsoft is down about 3 percent today and up almost 10 percent over the last three months, doing pretty well

there. Amazon is underperforming the group today. It's down nearly 4 percent. And that's on that report, Mike, that is bidding for Signal Health, which may be valued at $8 billion. Amazon getting into health care even more there. And then we got Alphabet. Alphabet's down about 3% and up more than 4% for the last three months. And then the worst here of the group, Meta. It's down more than 3%, and it's the only mega cap resisting the rally this summer. Down 16% the last three months, Mike. Yeah, Steve. Just a massive spread between Apple and Meta, but even most other of the big FANG stocks.

Appreciate it, Steve Kovach. We'll have much more on the market sell-off throughout the show. And after the break, we'll talk about one name that is bucking the downtrend, Signify Health, getting a huge boost as Amazon reportedly looks to join a bidding war for the company. We'll talk to the CEO of recently public Kano Health about that news as it gets a pop in sympathy. You're watching Closing Bell on CNBC. Indexes remain sharply lower. You see the Dow down 628 points right now, the S&P off more than 2 percent, just a few points up off its lows for the day. Let's now check out today's stealth mover. It is VF Corp.

Cowen downgrading the stock to market perform due to uncertainty related to management's guidance for fiscal year 2023 and increased competition in the footwear space. The analyst points out Google search trends for vans are significantly below 2019 levels and its exposure to China and Europe creates more uncertainty. Shares of VF Corp dragging more than 5%, 5.3% lower on the back of that downgrade. Another big mover today, check out shares of Signify Health. The stock up more than 30%. The Wall Street Journal reporting Amazon is getting into a bidding war for the company, along with CVS and UnitedHealth.

KanoHealth, a primary care provider based in Miami, is also moving on the back of this news, up nearly 15% today, along with CVS and UnitedHealth. KanoHealth, a primary care provider based in Miami, is also moving on the back of this news, up nearly 15% today, 14% right now. And KanoHealth CEO, Dr. Marlo Hernandez, joins us now to talk about this deal and the space. Dr. Hernandez, great to have you here. And maybe just give a little bit of the backdrop for this potential deal for Amazon buying into this part of the industry.

Clearly, Amazon only looks at big potential markets where maybe they can be disruptive and bring efficiencies. Well, good afternoon, Michael, and thanks for having me on. health much like what we saw with the Amazon purchase of one medical is yet another validation of how attractive healthcare is today particularly value-based healthcare that rewards quality over volume what you're seeing more broadly is a continued paradigm shift or evolution from that transactional system of healthcare that we have, which is broken, inequitable, to one that is more relational, that has a more proactive and comprehensive way that we treat patients. And Amazon and many other companies are recognizing that importance.

It's not like we go in and buy a car and then just call up Allstate or State Farm and say, pick one for me. Or we go to a grocery store and then, hey, this is the place where I'm going to entrust my life to and share my secrets. People need payment mechanisms. People need retail. But in healthcare, what patients have been demanding, what they've been clamoring for is that integrated platform where they can build relationships with trusted professionals and systems and that they can no longer be a number where they can actually get measurably better care at a lower cost. Now, we did mention your shares have popped.

They've had a tough time. You did have to lower guidance, I guess, earlier this month. Where does this leave your company? Does it make sense for you to participate in any of this consolidation? Clearly, some running these businesses believe that having more scale and a bigger platform could help. Well, what we're seeing is the market today is about $1.8 trillion. It's going to be about $3.7 trillion by 2030. And what we're experiencing is very rapid growth, growth ahead of our expectations.

And as it relates to the different alternatives to create long-term shareholder value, we're always looking out for these and evaluating the different opportunities. Always looking out as a general matter, I guess you say. Would you be concerned about a big tech company, cloud software, e-commerce company like Amazon becoming a large presence in this market? It's an enormous and growing market. You've got all the societal tailwinds, just a growing population, the silver tsunami. You've got government pointing right to value-based care. You have a scarcity of primary care physicians and systems in general that can provide that holistic value-based care. And what you're going to see is a lot of folks step up in order to provide that value, which patients and businesses, governments are looking for.

And there's just not that many out there that have those unique differentiators, that care platform that puts the center of care where it belongs, which is squarely with the patient, and then designing the programs and the products and services around that patient on a budget. And it's going to be a heavy lift for many companies. So what they are realizing, to their credit, is that they need to invest heavily in the management teams, in the infrastructure, in order to get them up to where they need to be for this enormous market. So there's plenty of opportunity for many players.

And we feel great as to what our position is in today's market. All right. We will see how things go with this bidding and beyond. Dr. Marlon Hernandez of Cano, thank you very much. Thank you. Let's check on the markets. Dow is still down about 640 points. S&P 500 is just 4140 is about where it's been for the last little while, down 2%. The Nasdaq slightly underperforming.

The Russell 2000 had a rally attempt earlier, but still down more than 2% as well. Up next, Barry Knapp from Ironside's macro just put out what he calls his first cautious note in months. He'll join us with the red flags he sees in the market. As we head to a break, check out some of today's top search tickers on CNBC.com. Got the 10-year yield on top, followed by APE, the new preferred shares from AMC, as well as AMC, Bed Bath & Beyond, and Tesla. We'll be right back. The major averages are sliding hard as investors look ahead to the Fed's Jackson Hole meeting later this week. Joining us now is Barry Knatt from Ironsideides Macroeconomics to handicap things for us.

Barry, good to talk to you. We mentioned just a minute ago that, you know, your note over the weekend, you said it was your first cautious one in several months, but put some context around that. I know you still think that the stock market might be able to kind of reclaim its losses for the year, but what gives you a bit of pause in the near term? Sure. To begin with, yeah, with the context, Mike, that you referenced, I do think we've hit the twin peaks. We hit peak inflation. The market expectations of that actually peaked in April. But the numbers, goods prices, energy prices have clearly peaked. We also hit peak hawkishness or peak tightening expectations. It's not when the Fed actually pivots. If we consider 94 as a great example of this, the Fed's peak hawkishness point was when they hiked 75 basis points back in November of 94.

They didn't actually pivot till June. That was the inflection point for the markets. Waiting for the pivot is too long. However, I do think we're in a position for an aftershock of what I've been describing as the mother of all taper tantrums. I would describe what happened in the first half of the year probably more as a Fed policy correction, but we can think of it as a taper tantrum. And it was related to the tightening of liquidity. The reason I think we're set up for an aftershock here is there's three channels that QE and QT affect the markets through. There's liquidity and reserves. We had a real shock in the first four months of the year due to the actions of the Treasury, even more so

than the Fed. So I'm really not concerned about the Fed draining 60 billion of liquidity a month through maturing Treasuries. Then there's that portfolio balance channel, the Fed buying Treasuries and forcing people into riskier asset classes. The taper tantrum is the QT side of that equation, right? The portfolio balance effect. But the final piece is the setting and level of long term rates and five and 10 year real rates. That's the noninflationary portion are still far too low. And, you know, we went from negative 110 basis points on 10 year real rates to plus 80 and then back all the way up to 30. I think they're vulnerable here to a move higher, partially

because of seasonality and partially because I do think the Fed could start talking about selling mortgages. And that piece is the only part of the QT story that really isn't adequately priced. So if you think back to September of 2018, for example, you started to move those real rates higher and the markets reacted to that. The same thing happened in January of 18. So I don't think we'll get back to the lows or close to it. But I

am concerned that this move higher in rates, the real rate portion of it in particular, could cause a broader risk off of them. And so that would essentially be essentially a jolt in real rates that gives the equity market an excuse to just sort of have a bit of a gut check or or how does it play out across markets? Well, we're already seeing it in currencies, right, because we have the dollar hitting a yearly high against the euro, the yen and the Chinese RMB. So that's a potential source of macro instability. But as far as the equity market goes, I would view it as likely to cause a decent retracement of the bounce we've had, which I do think is the low, as I said. But could we go back to 4000 or 4000 or so on the S&P?

Absolutely. I think tech would lead it. I don't understand utilities where they are. But the cyclical pieces, I think, will hold up OK. I like being long energy because that's another point of instability. But it could be, you know, it could be the setup for a, as I said, an aftershock of the mother of all taper tantrums. All right. Well, we'll brace for it. There's certainly 10 percent of downside in the S&P before we get to those lows. It could it could test the folks. Barry, thanks a lot. Good to catch up. All right, Mike. Thanks. All right. And after the break, the memes lose steam in a major way. Shares of AMC are tanking as the company debuts its new ape class of stock.

We'll tell you what that means for shareholders next. Index is sitting just barely above their lows for the day. The S&P 500 down more than 2% at levels first reach or last seen almost two weeks ago. It was on August 9th, and the Nasdaq is underperforming down about 2.5%. It's been a wild ride for meme investors after Ryan Cohen's sale of Bed Bath and Beyond triggered a big sell off in that stock last week. Today, AMC shareholders are feeling the heat to some degree as the company debuts its new ape class of stock. Christina Parts-Neviles has the details. And I guess, Christina, to sort of think about how to how to assess the impact of this new share class. Yeah, it's a little complicated, but we'll get into it because AMC's new preferred equity unit is known as APE because it's an acronym,

but it is also a special dividend and it could provide much needed capital to the largest movie chain in the country, which is AMC. But it's off to a rocky start. So every AMC shareholder as of last Friday were issued new APE shares. So instead of a stock split where you'd have AMC shareholder, as of last Friday, were issued new APE shares. So instead of a stock split where you'd have AMC be split into two shares, instead shareholders now hold one APE share for every one AMC share they own, both of which are trading in the red right now. AMC shares plunging, you could see, down even more, down 42%. There's several reasons.

You've got the APE issuance that's dragging on AMC, as would be in the case of a stock split. Then you've got concerns about Cineworld bankruptcy, the overall meme stock sell-off that you mentioned, Mike. And lastly, the general sell-off in tech prompted by rate concerns. But AMC is also having its worst, or third worst day, I should say, in history. You can see down 40%, very close to the second worst day at 41%. And if you were an AMC shareholder on Friday, you're still holding on to your stocks,

you're technically losing money. And that's because you combine the price, the share price of AMC, which let's just say it's about $11 and Ape's price, which is about six bucks. You add those two together, that's $17, which is below Friday's close of 1802. And so AMC CEO Adam Aaron is pretty adamant that shares will not be diluted going forward. But the company still holds the right to issue over 480 million new eight stocks, the key, whenever they see fit or when they need cash and or when it's in their best interest. The list goes on. Right.

And of course, if they're not going to dilute by issuing new preferred shares down the road, it's almost like, what's the point, right? Unless you wanted to just sort of do this synthetic stock split for, I guess, cosmetic and sentiment purposes. Well, exactly. So what's the point? Because you don't have any extra voting power. You can't easily convert

these ape units into common shares because you need approval from the board. The perk would be the preferred status in case of insolvency, which would be an incentive

for a lot of funds holding AMC. Maybe they're a little bit worried, especially with Cineworld, just the fact that even AMC issued a statement over the weekend that they warned Q3 might be weaker as well.

So they're acknowledging weakness going forward and that they may need to raise cash. And Ape shares could help them do that, even though shareholders voted against the issuance of new shares being released at the last shareholder meeting. Right. So potentially kind of a workaround. We'll see if that comes into play. Christina, thanks a lot for breaking it down for us. Thank you. All right. Turning back to the broader market, the major averages are sharply lower still as we approach the close. The Dow and S&P on pace for their worst day since June. Joining us now is Keith Lerner, co-CIO of Truist Advisory Services, and Jim Paulson, chief investment strategist of Lutol Group.

Good to have you both here. Keith, I don't think you were necessarily heartened too much by the rally that we got, believing that maybe it was not going to be a new uptrend. How does this feel to you today in terms of the reaction of stocks to what's happening in yields and expectations of the Fed? Well, first, Mike, great to be with you. As far as the market reaction today, it's a sharp sell off after a really strong rally. But we have been discussing with our

clients the last few weeks in this forty two hundred to forty three hundred range. We thought the risk reward was less favorable because at that point, especially as you hit the high end of this last week, you hit the high end of as far as fundamental resistance around an 18 multiple that would be the highest multiple outside the pandemic that we've seen over the last 20 years and then we had this confluence of technical resistance it almost seemed too cute that we went right up to the 200-day moving average then came down but um you know as this market moved up um you know you went from pricing in recession at the lows to pricing in almost no risk. And we just think that that environment is less favorable. And we're not too surprised by the pullback,

though. It was sharper than I think anyone would have expected on a Monday at the start of the week. Well, Jim, that is the thing, right? I mean, even if you thought you were going to respect the rally and thought that maybe it could be somewhat consequential, you might have said we should probably pull back and and chop around a little bit, just given how much we were up in a short period of time. But just talk about what the market has been contending with, because as we go down the list of obvious macro pressure points, they're the same ones we've been talking about for eight or nine months right now. And I just wonder where we are in the process of the market sorting all that out. I kind of agree with you, Michael, that, you know, I look at the bond, take the 10-year bond yield at 303 today. It's been at this same

area now for four months. I mean, the entire, most of the free market yield rates have stopped tightening over the last four months. And look, over that period of time, they've been battered by hawkish Fed talk, both coming from inside the Fed and from outside the Fed. They've been battered by bad, hot inflation numbers, CPI, core CPI, wages and the like. And I guess at some point, what new are we going to learn this week from the Fed and Jackson Hole that they haven't already discounted and adjusted for, if you will? This is like another Fed meeting, just an extra one with Jackson Hole. And at every Fed meeting, we tend to have pullbacks. The VIX goes up,

we get pullbacks in the market. And once the meeting is over, we kind of regain footing. And I don't know if this is going to be a lot different. What I am focused on is that, look, I think inflation is clearly headed south and it's going to continue to do that. And every time we get out a few more months, it'll be lower than it is today. And I think that's going to be more and more optimistic for stocks in general. And it's very encouraging to see the economic surprise index jump from minus 80 here at the end of last month to minus 10 today, where we're seeing some economic momentum come back, which has flattened out earnings revisions. They stopped going down on estimates this month after falling last month and improving the idea that we're not near term

to a recession. And if earnings hold together, inflation keeps coming down. I think I think the rally will regain footing yet in the balance of this year. Keith, how would you specifically look to approach it? Because I guess no matter whether you believe the valuations are really haven't reset enough to the downside, that's certainly plausible there. Or, you know, you want to just be open to whatever outcomes we have here in a very unusual situation where you have this high nominal growth. Again, companies seem like they navigated it OK in the last quarter. How would you want to have a mix of exposures that doesn't, I guess, leave you betting too

heavily on one scenario? Yeah, well, it's a good point, Mike. We published this last week, as far as the momentum off the lows has been typical of what you see after major lows. But the macro condition and the central bank policy, we think, is the other way. It's deteriorating. We actually think that central bank policy, all that tightening globally that's in the pipeline, we think will actually slow numbers later on this year. So we're still more defensively postured, Michael. We're looking at staples, health care. The one hedge for more of a sickle recovery would be energy. And I think more importantly, looking beyond just the U.S., we actually think the U.S. is the best place globally because look at emerging markets, look at developed international markets making new relative lows almost on a daily basis. And we can debate whether the U.S. is going to go into

a recession next year. But I think it looks like, especially in Europe, that a recession is likely here or going to happen soon. So we would still overall be more defensively inclined. And I think, Michael, the last thing is I think this market is going to require, again, to be more tactical than we have in the last couple of years, because there's so much scar tissue with this inflation that even if the Fed stops, I think it's going to be where the Fed holds its line for a while. And that's just going to be a more tactical environment than we've been accustomed to in these V-shaped recoveries, I think, of the past. Yeah, Jim, I mean, presumably, if in fact we're going to get toward the end or make some peace with where the Fed sits with its policies, you probably have to

get a little bit lucky on the inflation side to some degree and see it be a pronounced downtrend in the inflation readings. Do you see the makings of that? I mean, if you're trying to look at the sort of forward indicators of where inflation is going to settle, can we take any comfort in what that looks like? Well, let me just say two things with that, Michael, is one is is one of the things happening in the background of the Jackson Hole meeting is that inflation expectations are plummeting. If I look at the one-year break-even rate, that hit $2.60 this morning, which is down 1.2% just since the end of the month. It's down from 5.5% in mid-June and 6.3% in late March. That is, it's back with a two-handle on it, almost a mid-two-handle. And at the pace it's falling, it'll be at the inflation target of the Fed's 2% level by their September meeting.

So that across the curve, break-evens are coming down quite rapidly, even the New York Fed's inflation expectation of it coming. That says something about where the markets are thinking inflation is headed. But to your point, I think the biggest thing is, is inflation is coming down not because the Fed finally raised the funds rate for the first time off zero in March. It's coming down because money supply growth has been coming down for a year. Fiscal stimulus has been slowing for a year. The dollar went up 20 percent. Bond yields, free market yields have been rising for a year. And policies have about a one-year lag until they really impact inflation force. And the good news is, regardless of what the Fed does, that lagged effect of past policy tightening is going to continue to

put downward force on growth and inflation all the way until early next spring. So I think the Fed, what it needs to do is maybe look ahead a little bit about where the puck's going to be at the end of this year, as opposed to looking at where it is right now. And the market, from stocks to bonds to the break-evens, are really telling you that the inflation's going to continue to move lower. Interestingly, Keith, it's the one thing that Fed officials have tried to tell us not to believe, is that they're going to start to get proactive and project ahead to get help on inflation and that they kind of want to just see the data come through OK. Although, if you go back to Jay Powell's last press conference, any time he mentions we front loaded some of the hikes or any time he talks about rates already

being neutral, the market's probably going to seize on something like that to say that they recognize that policy affects the economy with a lag. That's right. And that could set us up for a rally, especially as we sell off ahead of the meeting. But even with that, let's just say they pivot. What's the incentive for them to start cutting rates aggressively? Again, we really believe they have scar tissue from what's happened. And let's just say that everything works out perfectly, that the economy is a soft landing. We're already on an 18 multiple. And then you look at the technology shares, which have really benefited over the last few months, they're trading at a multiple of about 23. Again, a pretty elevated level, about a 30 percent premium to the S&P.

So where's that leadership going to come from to really drive this market up? It's plausible, but you have to bake in some pretty optimistic scenarios to see a lot of upside, even if that inflation comes down, in our opinion. Yeah, Jim, I mean, the cyclical parts of the market, there's a mixed message, I would argue. I mean, industrials have acted pretty well. Transport's had a good run, but it seems not to be where the excesses have been, you know, leading into this period. So, I mean, can it somehow work where we do OK because the economic cycle is fine and those stocks that are tied to it can hold up and maybe not get a lot of help from some of the other areas?

I think it's possible, but I guess I have a more constructive view. This looks, I think whether we have a recession or not, we have in most people's minds. And this market rally looks like the beginning of a brand new fresh economic cycle, even if it isn't. And you're being led by early cyclicals. Consumer discretionary is one of the leading sectors, which is what often leads out of the end of a bear market. And I think growth will play a role. But to your point, I think cyclical areas, industrials particularly like financials, I think we'll do okay. You know, we did a couple things we didn't do. We never had a really an animal spirit period where there was just sheer optimism yet. But as inflation is coming down, you're reviving consumer confidence and CEO confidence. And I think that's going to, maybe for the first time, this could be driven with a revival of animal spirits. And look,

there's untapped potential. We never really used our household balance sheets. We still got excess household savings. Corporations still have excess cash flows. And some of that could be realized, if you will, once we get beyond pandemic and inflation fears. Maybe we'll see sort of old style animal spirit driven recovery yet. I'm not saying it's the panacea, but I think it's enough for higher highs in the stock market overall. Yeah, it's interesting. I mean, Keith, we certainly did come out of the pandemic period with a cushion in terms of corporate and consumer balance sheets. And really, even during the current calendar year, stocks had traded almost

as the inverse of gasoline prices. And now, you know, gasoline prices keep going down. So that benefit perhaps, I guess, is still with us. I think that's with us. I think sentiment is still somewhat negative. Mike, as you and I kind of discussed via email, there's a lot of folks are negative. The position in the futures market is still kind of nets short this market. So I think that will help buffer the downside as a whole since you didn't become too exuberant. So again, maybe that cushions the downside. But I think, again, you know, a lot of the points that were brought up, I think, are plausible. But do you want to bake that in as your base case scenario when you've had,

you know, LEI down for five months in a row, you've had new home sales down or existing home sales down for six months, you have the deepest inversion in the yield curve since 2000. And again, a market that is pricing in or has little room for error as far as valuations at a time when we think the best forward earnings will do is be flat as opposed to increase. So, again, that's why we think the risk reward is somewhat less unfavorable here. But again, there's some cushions to that downside, whether it's gas or positioning, as mentioned. Yeah, look, it's an ambiguous period. There's a lot of opposing currents and you guys captured a lot of them there. Good discussion, Keith and Jim. Thanks very much. All right, let's get straight into the closing bell market zone. Joining us are Evercore's John

Chappell on his downgrade of UPS, Bertha Coombs on the surge for Signify Health, and Rishi Jaluria on the pullback for software stocks. A couple of big calls in the transport sector today from Evercore, the firm downgrading UPS, those shares down slightly today. Evercore writing that the uncertain consumer backdrop would hurt volumes while noting the stock is trading

at the high end of its historic average. Turning to FedEx, shares there sinking nearly 4% after Evercore added the stock to its tactical underperformed list, but keeping an outperformed rating. Joining us now is the analyst behind the call, Evercore's John Chappell. John, great to have you here. Just it seems like mostly a macro driven shift in posture and I guess a reaction to to how the stocks have performed from here. That's absolutely correct, Mike. Thanks for having me. So, first of all, I mean, what we're saying is that the stocks have really run along with the market and the fundamentals at best have been status quo and at worst have gotten a little bit worse. What we've looked at, the two macro drivers of this report, is first inventories. And we were kind of ahead of this.

We were on your show on April 8th talking about inventories well below the major retailers started flagging this as an issue, as a yellow flag to transports. And these inventories continue to be very bloated. And you're seeing it with Walmart and Target last week. Not only did they take a margin hit on trying to deplete some of these inventories, but they've also both talked about billions of dollars of order cancellation, which cannot be good for freight demand. The other thing we looked at in this report for the first time was the Empire State Manufacturing Survey,

which has a really tight correlation with transport stocks in the four prior periods of going from peak to trough. As you probably know, the Empire State Manufacturing Survey really collapsed in the last month. So we think that's a very negative leading indicator to the group. We're not going full bearish. We're not going to the mattresses here. We're just saying we've run ahead of the fundamentals and we want to move to the sidelines on some of these stocks that are getting much closer to our price targets, stay strict to our valuation principles. You know, it's interesting, John, because, you know, there has been a line of thinking out there that you want to look for stocks with, you know, defensible competitive positions and pricing power and things that kind of say that

they have some sustainable advantage in UPS. And some of these companies are ones that rise to the surface on those screens. Is that not relevant at the moment? No, it's still relevant. I mean, the hardest part with the UPS call itself is it has proven to be defensive in past choppy cycles. But we like the rails better on a valuation perspective from that. I mean, they're oligopolies with good pricing power. They haven't really had the volume tailwind yet that we think is coming with a better grain season, with auto production recovering, with their service inevitably getting better at some point.

So we like the rail CSX and Northrop Southern better on that defensive group within the transport silo. Got it, John, appreciate you walking us through the call. Thank you. Thank you, Mike. All right, stocks now near session lows, actually making new lows, Dow down about 672%, the S&P 500 down a bit more than that as we approach the close.

With us through the rest of the market zone is CIC Wealth Executive Vice President Malcolm Etheridge. Malcolm, I know you've been a little bit on the cautious side. I guess not too surprised. We're retracing some of the rally. Does it seem like it has much more to go to you? I would actually not be surprised to see us continue in this direction just because it carried over from last week, which tells me it's not a blip. Today is actually a little bit of a warning. Maybe people came back from the weekend, the last good beach day, and they decided to come back and do some trading. So this week, I expect the trend will probably continue. All right. Yeah, it's a tougher seasonal period. We got the Jackson Hole meeting ahead of us. Lots of excuses not to add new risk.

Malcolm, we'll be back to you in a second. Shares of health care platforms Signify Health are surging today, bucking the market downtrend after a report said a bidding war could be brewing for the company between Amazon, CVS and United Health. The Wall Street Journal reporting that Signify is up for sale in an auction, which could value the company at more than $8 billion. Bertha Coombs joins us now. Bertha, where do things seem to stand in this horse race for the company? I guess the Journal had reported some time back that it was likely in play. Right. Likely in play and that the bids are due by the end of the month. It's interesting if you want to handicap the different players here.

For Amazon, this would be transformative, right? It would be the second deal in a row that goes into primary care. And particularly when it comes to Signify, they specialize in what's known as value-based care. That's where the whole industry is moving to pay more for quality of care, keeping people healthy rather than for each individual thing that a doctor may do. CVS Health, CVS is in the hunt for deals. They said on their conference call, earnings conference call, that they wanted to make a deal in primary care by the end of the year.

It would be ironic if, once again, as we saw with One Medical last month, Amazon would swoop in and get this primary care deal out from under them. In addition to the platform, Signify has some 10,000 doctors. Now, the interesting player to me in here is UnitedHealth, because UnitedHealth has more than 50,000 doctors that they either employ or are closely affiliated with. So they've already got the primary care piece. They are in value-based care as well. And the idea that they might get into this deal, even at a price of $30 a share, which would be much more than likely the others are offering at the moment, is something that I think would meet with pushback from regulators and others in the industry as well. So that's one to watch as to why they're in this deal.

Yeah. Interesting. Interesting wrinkle, Bertha. Thanks. And Malcolm, this general area, is it is it appealing at all in terms of either a long term play or just on the deal dynamics? Yeah. So the interesting thing about an Amazon type of company, a company the size of Amazon, is there's not really too many places that they can go to find opportunities for real growth, right? If you think about the big industries out there that are as big as tech or can at least compete with tech, it's autos and it's healthcare. And so unless Amazon wants to suddenly have to compete with Tesla in the auto sector, health care is really the only place for them to go to make a meaningful difference that's going to show some double digit returns over the next 10 years, let's call it.

So they have to figure out a way to get into that space. And they also have to figure out a way to get it right just in case so that they can hedge their bets in case the retail business really is decelerating for them the way it's seemed to over the last couple of years. Yeah, I mean, biggest untapped markets always come back seemingly to health care and payments, so probably ripe in those areas. Bertha, by the way, thank you very much for bringing that to us. It is a big week for software earnings reports, and RBC is downgrading two names in the sector.

First up, Coupa Software shares down nearly 7 percent, RBC moving to underperform at a $55 price target. Analysts calling the stock disproportionately recession-prone, and DocuSign also falling down some 4 percent, RBC saying the turnaround path for the company will be long and not helped by the lack of a CEO at the helm at the moment. RBC's Rishi Jaloria joins us now on the software calls. And just talk about how you're trying to draw distinctions between companies that have already sort of taken the pain and have downgraded their outlook and ones that seem like they might be more resilient. Yes, and thank you so much for having me. Look,

my approach to this is, you know, first we have our own framework for how we think about the sensitivity of companies to a recessionary environment because every company is not built the same. But what is interesting across the board is companies actually haven't taken the lumps yet, right? As you know, we've advised all our management teams to do that. But generally, because remember, software is on a radical model, it takes there's a long lag time between actual weakness and new business until it it shows up in your in your revenue numbers. So companies haven't been- guiding conservatively enough I think there is a lot of room for

for for down revisions. I think the other thing is we can we talk to these management teams and we try to think about. How are they addressing how they think their company. Will do in a recession and if we see a fundamental mismatch. Between

how the management teams are thinking about and how they're investing. Versus what we think reality will be, that definitely sets off some alarm bells in our head. What about Coupa do you think leaves it so vulnerable? To me, the big thing is I think Coupa, their core product is a great product. You know, people seem to really like it. I think it has a lot of value. The problem is a lot of Coupa is dependent on unseating SAP. And as we all know, in a recession, already there's incumbency bias, but that incumbency bias gets intensified during a recession.

And this is a product that is long sales cycle, long implementation process. And I think it's a combination of those factors that will make Coupa ultimately more recession prone than most software companies. And DocuSign, I mean, you portray it as a company that's sort of, you know, a bit adrift. It's obviously searching for a permanent CEO and coming off of maybe the economics of a pandemic period that just maybe distorted what the real business outlook was. I think that's absolutely fair. And look, there's a lot that DocuSign still has ahead of it. This isn't a company that they've pulled forward all of their business and there's no growth from here. We still see a lot of new use cases out there,

things like package delivery. We see a lot of new geographies that can expand to, right, including Europe, Japan, and I would argue India on top of that. You know, and then there's the platform expansion. So there's a lot they can do for. But I think that takes really good sales execution. That takes really strong leadership. And most of all, that takes time. And until there is a new CEO, none of this stuff is going to happen. This is, you know, more than a year in the time horizon. Hence why we shifted to the sidelines on this. We think there's better places investors could put their money, even if our long term thesis is still intact. Now, you do think that Zoom could have some upside here.

Obviously, it's sort of taken its lumps in the last year or so. But what is right ahead of it as the company prepares to report results? Yeah. And, you know, we'll find out exactly what happens in the next five to 10 minutes. But in my mind, I think ultimately Zoom still has the best technology. I think video conferencing is something that in a hybrid world and especially in a recessionary world where business travel comes down, companies cannot do without. And I think, you know, they are further along that platform expansion than DocuSign is. So I feel good about Zoom. I think the quarter is going to be just fine today. Hopefully I don't end up eating my words on that one. But I think the long-term outlook for them is good because of the technology, because of the management,

and because of the market opportunity. Rishi, really appreciate you running through with us. Thank you. Thank you. All right, let's get back now to the broader market. Remains under quite a bit of pressure. Malcolm, you know, we were at these levels of the S&P in early August.

We were here in July. We're basically here in June. So it's pretty familiar to be in this spot right now. Anything changing for you in terms of opportunities within the market that you think are worth seizing right now? Well, I think what's interesting is when we started to have this sell off, I don't know what, November-ish of 2021, all of a sudden folks started talking about how maybe this is the time to rotate away from tech. Because all of a sudden tech's out of favor. It's had its good decade run.

We saw this in 2000, tech wreck. And then all of a sudden we rotated into financials and then health care. And all of a sudden we saw tech being the thing to lead us out of that downturn that came out of 2021 and into this year. And I think it's interesting that that tech trade, folks aren't willing to let that go just yet. The four mega cap tech companies that brought us down first and then back out through July are also the same companies that are leading this rally. And now today and late last week, where we started to go backwards. And so I think it's interesting that thematically folks wanted to call the end of the tech trade. And I think it was a little too soon. I think tech's still the play, especially mega cap tech. And I think that's

what's going to drive this market in either direction near term. You know, Apple, even within mega cap tech, has really distinguished itself. Its outperformance has been pretty stunning. It's down with the market today. I just wonder if you think that its outperformance has been a reassurance or a red flag. Yeah, I think Apple has become a little bit of an anomaly, right? It's become its own asset class, as I heard folks jokingly say. And the reason is because the iPhone has proven itself now as more of a utility or a durable good, right? If you think about when the iPhone first came out, it was this luxury good in

the cell phone space where people were saying, you know, that kind of price tag, once they get up to the six, seven, 800, maybe a thousand dollar level for the iPhone 10, folks were saying, there's no way people are going to continue to pay that. But think the iphone has proven itself to now be a durable good to the point where apple can sell iphones through a recession if they need to and people will still be willing to buy them especially since the main carriers are subsidizing malcolm thanks very much appreciate it as we prepare to get into the close the s p 500 down 2.2 percent 41.35 first at these levels back a couple of weeks ago. That's the last time we were here from before the CPI report. The Dow is going to go out around down 650 at the moment.

Small caps underperforming as well. The dollar index hit a new high today. That was one of the main pressure points to start things. That does it here for Closing Bell.